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Book review: Alex M. Thomas, Macroeconomics: An Introduction (Cambridge University Press, Cambridge, UK 2021) 254 pp. Review of Keynesian Economics (IF 1.219) Pub Date : 2022-01-26 Alex M. Thomas
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Hysteresis and the New Consensus three-equation model: a Post-Keynesian amendment Review of Keynesian Economics (IF 1.219) Pub Date : 2022-01-26 Nelson H. Barbosa-Filho
This paper presents a Post-Keynesian interpretation of the usual three-equation model of New Consensus macroeconomics. The IS curve, Phillips curve, and monetary rule are obtained from stylized facts instead of intertemporal optimization, while price inertia and the government's inflation target drive expected inflation. The result is a model with no unique natural rate of interest. The central bank
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Monetary Keynesianism before Keynes? The January 1932 Harvard memorandum on anti-depression policies Review of Keynesian Economics (IF 1.219) Pub Date : 2022-01-26 Ramesh Chandra
A spotlight was directed by Laidler and Sandilands (2002) on the neglected 1932 Harvard memorandum (by Lauchlin Currie, Paul Theodore Ellsworth and Harry Dexter White). They interpret the memorandum as advocating fiscal inflationism as opposed to Keynesian fiscalism in tackling the Great Depression. While the former involves the creation of new money, the latter can operate independently of new money
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Towards a general, modern theory of animal spirits Review of Keynesian Economics (IF 1.219) Pub Date : 2022-01-26 Michael Lainé
The author proposes an updated theory of animal spirits that builds on Keynes’s insights and extends them by incorporating recent developments in neuroscience and psychology. He places animal spirits in a broader perspective of two systems of reasoning, each pertaining to different degrees of uncertainty. He examines how animal spirits form beliefs by way of analogical reasoning, the mental shortcuts
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Keynes vs Kalecki: risk and uncertainty in their theories of the rate of interest Review of Keynesian Economics (IF 1.219) Pub Date : 2022-01-26 Hubert Gabrisch
This study attempts to identify uncertainty in the long-term rate of interest based on the controversial interest-rate theories of Keynes and Kalecki. While Keynes stated that the future of the rate of interest is uncertain because it is numerically incalculable, Kalecki was convinced that it could be predicted. The theories are empirically tested using GARCH-in-mean (MGARCH) models without and with
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Why do we think that inflation expectations matter for inflation? (And should we?) Review of Keynesian Economics (IF 1.219) Pub Date : 2022-01-26 Jeremy B. Rudd
Economists and economic policymakers believe that households’ and firms’ expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations, and a case is made that adhering to it uncritically could easily lead to serious policy errors.
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The Godley-Tobin Memorial Lecture Review of Keynesian Economics (IF 1.219) Pub Date : 2022-01-26 Marc Lavoie
This paper offers a comparison of the macroeconomic views held by Wynne Godley and James Tobin. Both authors were more concerned than their contemporaries with monetary matters. Both authors contributed, in different ways, to the stock–flow consistent approach, with Tobin providing to Godley the portfolio analysis he was missing. Both authors held Keynesian policy positions, but both were accused at
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Book review: Geoff Mann, In the Long Run, We are All Dead: Keynesianism, Political Economy, and Revolution (Verso Books, London, UK 2017) 432 pp. Review of Keynesian Economics (IF 1.219) Pub Date : 2021-10-28 Nina Eichacker
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Effectiveness of capital controls in dampening international shocks Review of Keynesian Economics (IF 1.219) Pub Date : 2021-10-28 Chokri Zehri
This study is a contribution to the ongoing debate on whether capital controls are effective in buffering international shocks and reducing capital flows volatility. The author demonstrates that capital controls can considerably mitigate the effects of monetary and exchange rate shocks and reduce the volatility of capital inflows to emerging markets. This study analyses quarterly data of 28 emerging
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Financialization, premature deindustrialization, and instability in Latin America Review of Keynesian Economics (IF 1.219) Pub Date : 2021-10-28 Esteban Pérez Caldentey,Matías Vernengo
The paper analyses the relation between premature deindustrialization in Latin America and what is termed premature financialization. Premature financialization is defined as a turn to finance, organized as an industrial concern, which is a vehicle for accumulation before the process of industrialization has reached maturity. This contrasts with developed countries where financialization occurs after
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Financialization revisited: the economics and political economy of the vampire squid economy Review of Keynesian Economics (IF 1.219) Pub Date : 2021-10-28 Thomas Palley
This paper explores the economics and political economy of financialization using Matt Taibbi's vampire squid metaphor to characterize it. The paper makes five innovations. First, it focuses on the mechanics of the ‘vampire squid’ process whereby financialization rotates through the economy, loading sector balance sheets with debt. Second, it identifies the critical role of government budget deficits
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Book review: Zachary D. Carter, The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes (Random House, New York, NY, USA 2020) 656 pp. Review of Keynesian Economics (IF 1.219) Pub Date : 2021-10-28 Matías Vernengo
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Globalization of capital, erosion of economic policy sovereignty, and the lessons from John Maynard Keynes Review of Keynesian Economics (IF 1.219) Pub Date : 2021-10-28 Biagio Bossone
This article observes that current macroeconomic policy modeling, centered on domestic agents or agencies, fails to recognize the role that global investors play in determining the space for effective domestic macroeconomic policies, and argues that these actors must be brought to the center of macro analysis if one wants to understand how policies work in the global financial context. The article
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Rent-seeking and asset-price inflation: a total-returns profile of economic polarization in America Review of Keynesian Economics (IF 1.219) Pub Date : 2021-10-28 Michael Hudson
This paper reconstructs the National Income and Product Accounts to add asset-price (‘capital’) gains to national income to derive a measure of total returns. It also treats rent-extraction as a charge against national income and GDP, not as a contribution to national output. Segregating the Finance, Insurance, and Real Estate sector from the rest of the private sector shows that most growth in wealth
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A note on ‘Wage-led versus profit-led demand regimes: the long and the short of it’ Review of Keynesian Economics (IF 1.219) Pub Date : 2021-07-19 Lilian N. Rolim
The aggregative and structural approaches are the main approaches used to investigate the US demand regime. They have reported mixed findings whereby the former tends to find profit-led results and the latter tends to find wage-led results. Blecker (2016) suggests that those conflicting findings can be explained, at least in part, by the different time dimensions captured by the two approaches. That
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Life among the Econ: 50 years on Review of Keynesian Economics (IF 1.219) Pub Date : 2021-07-19 Thomas Palley
Almost 50 years ago, the Swedish econographer Axel Leijonhufvud (1973) wrote a seminal study on the Econ tribe titled ‘Life among the Econ.’ This study revisits the Econ and reports on their current state. Life has gotten more complicated since those bygone days. The cult of math modl-ing has spread far and wide, so that even lay Econs practice it. Fifty years ago the Econ used to say ‘Modl-ing is
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Omitted-variable bias in demand-regime estimations: the role of household credit and wage inequality in Brazil Review of Keynesian Economics (IF 1.219) Pub Date : 2021-07-19 Julia Burle,Laura Carvalho
In the Kaleckian theoretical framework, an economy's demand regime is characterized as either wage-led or profit-led depending on the relative effect of an increase in the wage share on consumption, investment, and net exports. Based on this framework, a vast empirical literature has focused on estimating demand regimes in numerous countries. Although they contribute to a better understanding of the
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Household indebtedness, distribution, and bargaining power under distribution-induced technological change: a macroeconomic analysis Review of Keynesian Economics (IF 1.219) Pub Date : 2021-07-19 Eric Kemp-Benedict,Y.K. Kim
We present a stylized model to explore the interaction between household debt, functional income distribution, and technological change. We assume that weak labor bargaining power allows firms to set their mark-ups in order to meet a target profit rate. At a low wage share, workers’ households are assumed to have limited flexibility in meeting financial goals, so household indebtedness tends to rise
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Book review: Sergio Cesaratto, Heterodox Challenges in Economics: Theoretical Issues and the Crisis of the Eurozone (Springer, Cham, Switzerland 2020) 296 pp. Review of Keynesian Economics (IF 1.219) Pub Date : 2021-07-19 Karsten Kohler
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Distribution, wealth and demand regimes in historical perspective: the USA, the UK, France and Germany, 1855–2010 Review of Keynesian Economics (IF 1.219) Pub Date : 2021-07-19 Englebert Stockhammer,Joel Rabinovich,Niall Reddy
Most empirical macroeconomic research is limited to the period since World War II. This paper analyses the effects of changes in income distribution and in private wealth on consumption and investment covering a period from as early as 1855 through to 2010 for the UK, France, Germany and the USA, based on the data set of Piketty and Zucman (2014). We contribute to the study of wealth effects, of financialization
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Distribution, wealth and demand regimes in historical perspective: the USA, the UK, France and Germany, 1855–2010 Online Appendices Review of Keynesian Economics (IF 1.219) Pub Date : 2021-07-19 Engelbert Stockhammer,Joel Rabinovich,Niall Reddy
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Human capital accumulation, income distribution, and economic growth: a demand-led analytical framework Review of Keynesian Economics (IF 1.219) Pub Date : 2021-07-19 Gilberto Tadeu Lima,Laura Carvalho,Gustavo Pereira Serra
This paper incorporates human capital accumulation through provision of universal public education by a balanced-budget government to a demand-driven analytical framework of functional distribution and growth of income. Human capital accumulation positively impacts on workers’ productivity in production and their bargaining power in wage negotiations. In the long-run equilibrium, a rise in the tax
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External balance sheets of emerging economies: low-yielding assets, high-yielding liabilities Review of Keynesian Economics (IF 1.219) Pub Date : 2021-04-12 YılmaZ Akyüz
The new millennium has witnessed a rapid expansion of external balance sheets and significant changes in the capital, currency and sectoral compositions of foreign assets and liabilities of emerging economies. These have created new channels of transmission of global financial shocks and amplified the susceptibility of the value of their outstanding stocks of gross foreign assets and liabilities to
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Thirlwall's law is not a tautology, but some empirical tests of it nearly are Review of Keynesian Economics (IF 1.219) Pub Date : 2021-04-12 Robert A. Blecker
This article examines the charge that Thirlwall's law is a theoretical tautology. It shows that a certain approach to empirical testing of that law can sometimes – under conditions analysed here – result in econometric estimates that reflect an approximate identity or ‘near-tautology’. Nevertheless, other methods of empirically testing the law are not subject to the near-tautology critique, and hence
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Expectations and exchange rates in a Keynes–Harvey model: an analysis of the Brazilian case from 2002 to 2017 Review of Keynesian Economics (IF 1.219) Pub Date : 2021-04-12 Leandro Vieira Araújo Lima,Fábio Henrique Bittes Terra
This paper investigates the statistical relationship between the future expectations of the exchange rate and GDP growth and the current nominal exchange rate in Brazil during the period 2002–2017. The theoretical framework on which the paper is based is a decision-making model grounded in Keynes (1921; 1936) and Harvey (2006; 2009a), from which the paper's empirical model emerges. This model is tested
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Questioning the effect of the real exchange rate on growth: new evidence from Mexico Review of Keynesian Economics (IF 1.219) Pub Date : 2021-04-12 Florencia Médici,Augustín Mario,Alejandro Fiorito
This study provides new evidence showing that the real exchange rate (RER) does not play an important role in the growth of Mexican GDP. Economic growth is not an automatically predetermined result of relative price correction, and it is important to consider distinctive aspects of national institutional arrangements (fiscal and monetary, for example) for understanding theoretical causality of demand
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A macroeconomic critique of integrated assessment environmental models: the case of Brazil Review of Keynesian Economics (IF 1.219) Pub Date : 2021-04-12 Rafael Cattan,Florent McIsaac
This paper surveys integrated assessment models applied to Brazil. We show that these models belong to the environmental economics literature that fails to consider some of the most important aspects of the modern macroeconomic dynamics in Brazil. These features include monetary and financial balances, income distribution, and physical limits to growth. We argue that the most suitable framework for
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Book review: George Selgin, Floored! How a Misguided Fed Experiment Deepened and Prolonged the Great Recession (CATO Institute, Washington, DC, USA 2018) 230 pp. Review of Keynesian Economics (IF 1.219) Pub Date : 2021-01-19 Ahmad A. Borazan
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Monetary policy in liberalized financial markets: the Mexican case Review of Keynesian Economics (IF 1.219) Pub Date : 2021-01-19 Santiago Capraro,Carlo Panico
The paper examines the behavior of monetary policy and the institutional organization of economic policy in Mexico during the years of financial liberalization and the outgrowth of the financial industry. It argues that these policies have favored monetary and financial stability at the cost of reducing investment and negatively affecting the strength of the productive structure and the international
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Book review: Mauro L. Baranzini and Amalia Mirante, Luigi L. Pasinetti: An Intellectual Biography (Palgrave Macmillan, London, UK 2018) 390 pp. Review of Keynesian Economics (IF 1.219) Pub Date : 2021-01-19 Daniele Schilirò
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Explaining global imbalances: the role of central-bank intervention and the rise of sovereign wealth funds Review of Keynesian Economics (IF 1.219) Pub Date : 2021-01-19 Richard Senner,Didier Sornette
Neoclassical economic theory views current-account imbalances as the result of (individual) decisions to save more than to invest domestically. Monetary analysis in the Keynesian tradition rejects such approaches and emphasizes that a country's net savings are the result, not the cause, of net selling of goods and services to foreigners. The latter, in turn, depends on global demand patterns and absolute
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Monetary policy effectiveness in the liquidity trap: a switching regimes approach Review of Keynesian Economics (IF 1.219) Pub Date : 2021-01-19 Dimitris G. Kirikos
Liquidity trap economics seems to have fared particularly well on all counts of its predictions, in the aftermath of the 2008 global financial crisis. Therefore, in this paper we evaluate formally the effectiveness of unconventional monetary policy in a liquidity trap, based on data from Japan, the USA, and the eurozone over periods of liquidity trap conditions (1994–2018 for Japan and 2009–2018 for
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Money creation in the modern economy: an appraisal Review of Keynesian Economics (IF 1.219) Pub Date : 2021-01-19 Jacob Stevens
This paper models a representative bank, and uses this model to explore the assumptions and implications of a selection of money-creation theories. It is shown that the money-supply process tends toward the logic of exogeneity as banks' fears about liquidity stress increases. At present, banks do not fear liquidity stress because central banks are operating under a floor system with a superabundance
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Can loss aversion shed light on the deflation puzzle? Review of Keynesian Economics (IF 1.219) Pub Date : 2021-01-19 Jenny N. Lye,Ian M. McDonald
This paper argues that the application of loss aversion to wage determination can explain the deflation puzzle: the failure of persistently high unemployment to exert a persistent downward impact on the rate of inflation in money wages. This is an improvement on other theories of the deflation puzzle which simply assume downward wage rigidity, namely the hysteresis theory, the lubrication theory and
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Print Email The Godley–Tobin memorial lecture Review of Keynesian Economics (IF 1.219) Pub Date : 2021-01-19 Robert J. Shiller
John Maynard Keynes's (1936) concept of ‘animal spirits’ or ‘spontaneous optimism’ as a major driving force in business fluctuations was motivated in part by his and his contemporaries' observations of human reactions to ambiguous situations where probabilities couldn't be quantified. We can add that in such ambiguous situations there is evidence that people let contagious popular narratives and the
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Fiscal policy in a depressed economy: a note Review of Keynesian Economics (IF 1.219) Pub Date : 2020-10-20 Robert Rowthorn
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In memoriam: Julio López Gallardo (22 September 1941 – 3 May 2020) Review of Keynesian Economics (IF 1.219) Pub Date : 2020-10-20 Gerardo Fujii-Gambero,Juan Carlos Moreno-Brid,Carlo Panico,Martín Puchet Anyul
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Book review: Aleksandr V. Gevorkyan, Transition Economies: Transformation, Development, and Society in Eastern Europe and the Former Soviet Union (Routledge, New York, NY, USA 2018) 272 pp. Review of Keynesian Economics (IF 1.219) Pub Date : 2020-10-20 Gonzalo Luis Fernández
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Beyond Modern Money Theory: a Post-Keynesian approach to the currency hierarchy, monetary sovereignty, and policy space Review of Keynesian Economics (IF 1.219) Pub Date : 2020-10-20 Daniela Prates
This paper provides an alternative view of monetary sovereignty (MS) from the Neo-Chartalist approach found in the Modern Money Theory literature. The differences between the author's approach to MS and Neo-Chartalism cover the following aspects: the nature of money, the acceptability of money, and the relationship between the central bank and the Treasury. The paper then analyses the relationship
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Book review: Esteban Pérez Caldentey, Roy Harrod (Great Thinkers in Economics, Palgrave Macmillan, London, UK 2019) 455 pp. Review of Keynesian Economics (IF 1.219) Pub Date : 2020-10-20 Víctor Manuel Isidro Luna,Francisco Antonio Martínez Hernández
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What's wrong with Modern Money Theory: macro and political economic restraints on deficit-financed fiscal policy Review of Keynesian Economics (IF 1.219) Pub Date : 2020-10-20 Thomas Palley
The essential claim of Modern Money Theory (MMT) is sovereign currency issuing governments, with flexible exchange rates and without foreign currency debt, are financially unconstrained. This paper analyses the macroeconomic arguments behind that claim and shows they are suspect. MMT underestimates the economic costs and exaggerates the capabilities of deficit-financed fiscal policy. Those analytic
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Employment hysteresis: an argument for avoiding front-loaded fiscal consolidations in the eurozone Review of Keynesian Economics (IF 1.219) Pub Date : 2020-10-20 Paulo R. Mota, Abel L.C. Fernandes, Paulo B. Vasconcelos
The austerity policy applied by the Eurozone peripheral governments under the International Monetary Fund (IMF)/ European Central Bank (ECB)/ European Commission financial assistance programs has contributed to a sharp reduction of aggregate demand, regardless of the unconventional measures undertaken by the ECB. The ECB decreased the interest rate on the main refinancing operations to zero, and is
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Macroeconomic performance under evolutionary dynamics of employee profit-sharing Review of Keynesian Economics (IF 1.219) Pub Date : 2020-10-20 Gilberto Tadeu Lima, Jaylson Jair da Silveira
This paper investigates the impact on capacity utilization and economic growth as variables driven by effective demand of income distribution featuring the possibility of profit-sharing with workers. Firms choose to compensate workers with either a base wage or a share of profits on top of this base wage. In accordance with robust empirical evidence, workers in sharing firms have higher productivity
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Peripheral Europe beyond the Troika: assessing the ‘success’ of structural reforms in driving the Spanish recovery Review of Keynesian Economics (IF 1.219) Pub Date : 2020-10-20 Luis Cárdenas, Paloma Villanueva, Ignacio Álvarez, Jorge Uxó
Since 2014 the Spanish economy has recovered positive GDP growth, and the country has been growing well above the Eurozone average. This recovery has sparked an academic and political debate concerning the role that structural reforms, prescribed by the 'Troika', have played in peripheral Europe. For certain scholars and institutions, these structural reforms have allowed the market, through greater
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Can tax competition boost demand? Causes and consequences of the global race to the bottom in corporate tax rates Review of Keynesian Economics (IF 1.219) Pub Date : 2020-10-20 Ryan Woodgate
Corporate tax rates have been consistently falling around the world for decades now. This paper aims to explain the causes and consequences of this ‘global race to the bottom’. In particular, the author wishes to test the hypothesis that this race to the bottom is driven by demand-boosting corporate tax competition, where, contrary to traditional Kaleckian theory, lower corporate taxes may positively
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Book review: Nicola Acocella, Rediscovering Economic Policy as a Discipline (Cambridge University Press, Cambridge, UK 2018) 424 pp. Review of Keynesian Economics (IF 1.219) Pub Date : 2020-07-21 Matías Vernengo
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Some observations on endogeneity in the normal rate of capacity utilisation Review of Keynesian Economics (IF 1.219) Pub Date : 2020-07-21 Brett Fiebiger
As is well known, the closure of the canonical Neo-Kaleckian model is an endogenous rate of capacity utilisation. To allay concerns of Harrodian instability one response has been to endogenise the normal rate to effective demand pressures. Recent contributions have stressed microfoundations for an adjustment in the normal rate towards the actual rate. The new approach focuses on shiftwork and redefines
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Workers' debt-financed consumption: a supermultiplier stock–flow consistent model Review of Keynesian Economics (IF 1.219) Pub Date : 2020-07-21 Gabriel Vieira Mandarino,Claudio H, Dos Santos,Antonio Carlos Macedo e Silva
This paper presents a supermultiplier stock–flow consistent model of economic growth led by debt-financed consumption of workers. In so doing it tries to shed light on the financial requirements of growth trajectories based on induced investment. The model explicitly derives the aggregate financial needs of both workers and firms and how these needs can be met by the banking sector – mapping out all
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A critical evaluation of some Kaleckian proposals to deal with the issue of convergence towards normal capacity utilization Review of Keynesian Economics (IF 1.219) Pub Date : 2020-07-21 Guilherme Haluska
It is a well-established result of Kaleckian models in which output growth is led by investment expenditures that capacity utilization is endogenous and positively related to the growth rate of output, and that attempts by capitalists to adjust productive capacity to demand might trigger Harrodian instability. This motivated several theoretical proposals by some Kaleckian authors in order to deal with
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Stagnation and unnaturally low interest rates: a simple critique of the amended New Consensus and the Sraffian supermultiplier alternative Review of Keynesian Economics (IF 1.219) Pub Date : 2020-07-21 Franklin Serrano, Ricardo Summa, Vivian Garrido Moreira
This paper argues that the amended versions (financial wedge and secular stagnation) of the simple pragmatic New Consensus model are as open to theoretical criticism as the original one was. The authors show that: (i) the real natural rate of interest is unlikely to be negative, (ii) it (inconsistently) depends on the Neoclassical investment function drawn at a position of full employment in a model
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A baseline supermultiplier model for the analysis of fiscal policy and government debt Review of Keynesian Economics (IF 1.219) Pub Date : 2020-07-21 Fabio Freitas, Rodrigo Christianes
The article presents a basic Sraffian supermultiplier model for the analysis of fiscal policy and government debt. First, we discuss the assumptions and the equilibrium and stability properties of the model. Next, we investigate the effects on the main endogenous variables of the model (including the primary government deficit and debt ratios) of changes in the rate of growth and composition of autonomous
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Investment rate, growth, and the accelerator effect in the supermultiplier model: the case of Brazil Review of Keynesian Economics (IF 1.219) Pub Date : 2020-07-21 Julia de Medeiros Braga
This paper investigates the role of demand in the productive investment evolution in the Brazilian economy. First, it assesses the long-run relationship between the investment rate and GDP growth, taking annual data from 1962 to 2015. The paper then constructs a ‘final demand’ index and estimates its impact on the productive investment growth rate, taking quarterly data from 1996Q1 to 2017Q2, highlighting
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Book review: John Smithin, Rethinking the Theory of Money, Credit, and Macroeconomics (Lexington Books, Lanham, MD, USA 2018) 239 pp. Review of Keynesian Economics (IF 1.219) Pub Date : 2020-04-07 Gregory A. Krohn
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Distribution and capacity utilization in the United States: evidence from state-level data Review of Keynesian Economics (IF 1.219) Pub Date : 2020-04-07 Luke Petach
Applying previously unused regional data to the problem of wage- versus profit-led growth, this paper estimates a demand-and-distribution system for a panel of US states for the years 1974 to 2014. Using variation in minimum-wage policy across states as an instrument for the labor share, I find that – at a regional level – the United States is strongly wage-led. In the absence of a satisfactory
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Making sense of Piketty's ‘fundamental laws’ in a Post-Keynesian framework: the transitional dynamics of wealth inequality Review of Keynesian Economics (IF 1.219) Pub Date : 2020-04-07 Stefan Ederer, Miriam Rehm
Piketty’s main theoretical prediction is that a small elite will own all wealth if capitalism is left to its own devices. We formulate and calibrate a Post-Keynesian model with an endogenous distribution of wealth between workers and capitalists. The model permits Piketty’s corner solution of all wealth held by capitalists; however, it also shows that interior solutions with a stable, non-zero wealth
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Autonomous expenditures and induced investment: a panel test of the Sraffian supermultiplier model in European countries Review of Keynesian Economics (IF 1.219) Pub Date : 2020-04-07 José A. Pérez-Montiel, Carles Manera Erbina
This paper tests the main postulates of the Sraffian supermultiplier model for the case of 16 European economies during the period 1995–2018. We adopt the methodology of Girardi and Pariboni (2016) and extend it to a panel framework. We apply panel unit root, cointegration, and causality tests that are robust to endogenous regressors, cross-sectional dependence and heterogeneity across countries